Scrap federal transfers, and lower our taxes

Worth A Look, Equalization, Frontier Centre

A country with low tax rates will stimulate an economy, increase jobs, encourage investment and benefit its citizens.

Our federal Liberal government doesn’t understand this. If it did, all federal transfers would have been eliminated by now, and all provinces would have felt the cool breeze of immediate tax relief.

Federal transfers are payments that Ottawa hands out to Canada’s provinces and territories. This money is used for provincial equalization payments, health care, universities, Employment Insurance and territorial funding.

Where does it come from? Taxpayers, of course. But the largest burden comes from the two “have” provinces, Alberta and Ontario. They are in effect subsidizing the remaining eight “have-not” provinces to keep Canada afloat financially.

That’s why we live in a welfare state. The have-not provinces have become so dependent on government handouts for survival that they don’t see a light at the end of the tunnel. They just hold out their hands and ask for more.

Even worse, the “haves” are getting shortchanged by Ottawa.

For example, Ontario is running a $23-billion shortfall in federal transfers – that’s the difference between how much we pay out, and how much we get in return from the feds.

Thus, Ontario’s much-touted productivity is nothing more than window dressing. If we can’t enjoy the economic benefits, then, to draw from (forgive me) Belinda Stronach’s infamous statement, the economic pie we’re baking has gone flat.

It’s little wonder that Ontario Premier Dalton McGuinty is fed up. There are many things I can say about McGuinty – and most of them aren’t good – but I sympathize with his frustration about what he calls the feds’ fiscal gap.

Therefore, I recommend the premier listen to the wise soothsayers at the Institute for Competitiveness and Prosperity.

In a working paper on fiscal federalism this week, the government-funded Institute suggests Ottawa shift gears from federal transfer spending to reducing corporate income taxes.

Why? The paper calculates that $1,400 per person is being transferred from “high-productivity uses” to “low-productivity uses” each year. This means federal transfers are causing Canada’s overall productivity to plummet, and business is being discouraged from investing here.

Companies typically invest in countries that support less government intrusion, keep taxes low and profits high. If Canada is not willing establish this type of pro-business environment, we can’t expect corporations to invest.

But if Ottawa eliminated the federal transfer program and promoted tax relief for corporations, this attitude would surely change. Profitable businesses would translate into a profitable economy and more jobs for Canadians. And a decrease in government handouts would lead to an increase in provincial productivity.

There is no reason why all Canadian provinces cannot be profitable. Yes, the have-nots are at a slight disadvantage because they survived on the backs of the haves for too long. But the only way to break out of this welfare-like dependency is for the have provinces to cut the cord and set them free.

Tax relief for the have-not provinces would enable them to attract companies with innovative ideas and pro-free market principles. The key is lower taxes and economic growth, not federal transfers and a bigger state machine.

Premier McGuinty has been given a golden opportunity to make a case for eliminating federal transfers. For Ontario’s sake, let’s hope he doesn’t lay an egg as he usually does.